SIX million pensioners could be handed a Budget windfall next week.

Ministers are considering ­giving them the freedom to cash in their annuities.

With many trapped in deals that offer poor value for money, the idea is likely to be very popular.

If the plans go ahead, pensioners would be allowed to sell their annuity – a guaranteed income for life – to insurance companies and either buy a better value product or take the cash as a lump sum.

The aim is to boost retirement income for those who have missed out on pension reforms and talks are already under way in Whitehall, according to a source.

From next month, an estimated 320,000 retiring workers with defined contribution schemes will be allowed to take as much as they like from their pension pots as a lump sum rather than buying an annuity.

The proposals would go further by giving existing annuity holders the option to convert their guaranteed income into a cash lump sum.

It means any of the six million pensioners who missed out on the reforms because they were already locked into annuity contracts could have the freedom to cash in.

This is potentially very good news for the millions who were sold these poor value products

James Baxter, pensions advisory specialist

The idea, originally mooted in January by Lib Dem pensions minister Steve Webb, could be included in a consultation paper alongside the Budget.

A Lib Dem source said: “We believe that people should have the freedom to spend their hard-earned pension as they wish.

"We have suggested this approach because we think today’s pensioners should get the same freedoms as tomorrow’s.”

John Fox, director of the pension provider Liberty SIPP, said: “The plan has the potential to offer a lifeline to the millions of pensioners stuck with a measly annuity.”

James Baxter, of pensions advisory specialist Tideway Investment Partners, said: “This is potentially very good news for the millions who were sold these poor value products.

“If they could access these pots as lump sums it would open up a whole new vista of investment opportunity.”

Pensions expert Ros Altmann, the Government’s champion for older workers, said: “Over the past few years annuity rates have fallen significantly so the amount of lifetime income customers received has been much lower.

“Some people have been happy to buy an annuity and, if they had help to choose the right type of product and get a good rate, they may well be satisfied.

"However, there are many people who would love the chance to revisit their purchase.

“Someone with a £5,000 pension fund who bought an annuity at age 60 might have less than £5 a week for life, whereas a few thousand pounds in cash could make a real difference to their lives.”